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From one disaster to another: Insurers take on the drought 2

Chances are good that any fresh vegetables you eat during January, February and March were grown in Florida. We are also responsible for 70 percent of the country's citrus production. We have 47,500 farms on more than 9.2 million acres. As a result of this heavy reliance on agriculture, Florida, according to a nationwide crop insurance trade association, knows about crop insurance.

The federal government's role in crop insurance is different from its role in flood insurance. The Risk Management Agency of the U.S. Department of Agriculture manages the Federal Crop Insurance Corporation. FCIC sets premiums and policy terms and conditions for its own products and approves premiums, terms and conditions for insurance products developed by one of 16 private companies. Those 16 private insurers can sell either the FCIC coverage or their own product. Farmers are under no obligation to purchase the coverage.

In our last post, we discussed the federal subsidies that help agricultural producers to pay for their crop insurance premiums and that help offset the private insurers' losses. There are years -- though not lately, it seems -- that losses are low, and the RMA may end the year with a net gain.

During those years that the insurance companies pay out less than they take in, the gains go back to taxpayers. It isn't much, but it is something. Farmers probably pay a little more than one-third of their actual premium. Taxpayers chip in if necessary and get paid back if the coverage is unused.

The argument against generous federal subsidies is inevitably met with a warning that if there were no insurance, and crop damage occurred from drought or flood, the government would respond with emergency funds -- subsidized entirely by taxpayers. The assistance would be less helpful to farmers, and they would pay nothing for it. Under the crop insurance program, farmers can plan, can pay at least a part of their premium and the burden is not solely on the taxpayers.

For the insurance industry, 2011 was a very bad year. We'll just have to see if the 2012 drought wreaks the kind of havoc the 2011 floods and tornadoes did.

Source: Columbus Telegram, "Crop insurance claims continue to rise," Art Hovey, Nov. 10, 2012

We work with policyholders in Miami and South Florida who are having trouble navigating the labyrinthine claims processes of their insurance companies, like some farmers affected by the drought may. Please visit the Delays in Insurance Payment Disputes page of our website for additional information about our practice.

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